Millions of people in developing countries use mobile money to perform a wide range of transactions. This ecosystem includes financial services like paying bills, transferring funds, buying airtime, making deposits and withdrawals, sending money across borders, savings, receiving wages, and accessing other financial services.

The impact of mobile money ecosystem in Africa (Oystr)

Mobile money is one of the most studied issues in international development, and every year more research and evidence emerge that demonstrates the positive effect it has on individuals. A successful mobile money platform simplifies a user’s life and brings new capabilities, such as payments, to those who never had them before.

Mobile money can become a catalyst for economic growth and the basis of a general payment platform. Growing rapidly in adoption, mobile money could be used across multiple sectors, transforming economies.

Over 2.5 billion people worldwide lack access to traditional banking services but communicate daily via mobile phones. Serving those customers creates an opportunity for financial institutions to offer these customers mobile banking solutions. Agents who serve these customers in person can be among your most valuable branches and help you reach new customers with limited infrastructure or costs. Read on to understand the mobile money ecosystem and its impact in Africa.

The Mobile Money Ecosystem

The volume of ecosystem transactions across sub-Saharan Africa has grown exponentially over the last seven years, driven by mobile money and innovations in fintech. Money flow between consumers and businesses has supported key industries like agriculture, utilities, education, health, and logistics.

Mobile money services have been a great democratizer in the banking world — reaching a broader spectrum of underbanked and underserved populations.

With the recent explosion of mobile money systems across Africa, Asia, and the Middle East, the question becomes not whether it’s possible to transfer money using a mobile device but how to make these services ubiquitous across geographies and socioeconomic groups.

For example, more than two-thirds of Kenyans now use mobile phones for basic banking transactions. It includes paying school fees and bills and transferring money to rural communities. Mobile money services have already made a remarkable contribution in developing countries. However, with nearly half of the world’s population still unbanked, operators must further develop their technology to increase user retention and engagement.

As its adoption increases, operators need to further develop and invest in these services to empower new users who lack basic financial knowledge. There’s also a need for operators to leverage partnerships with major players in other sectors, such as telecommunications and retail. As mobile money networks grow, they can generate network effects that are scale-based or scope-based. Scale-based network effects can increase service value through users’ number and transactions, thereby increasing liquidity.

With the right ecosystem, mobile money can play a central role in providing essential services, particularly in high unbanked populations. More than a third of mobile money accounts receive salaries using their wallets. Over 60% of bill payments go toward utilities. More than 70% of mobile money providers work with agribusinesses and cooperatives.

What Is the Impact of Mobile Money?

According to GSMA research on ecosystem transactions in the digital economy, mobile money impacts the region’s lives. The rapidly rising availability of fast, digital payments is furthering financial inclusion for millions — especially for women and individuals living in rural areas.

More than a quarter of a billion people in Africa use mobile money. From the farmer consolidating a service into a single purchase to remittance recipients buying goods locally and merchants using mobile money to manage cash flow. Research shows that ecosystems are emerging, where transactions increasingly drive essential services.

With more and more mobile money users opting in, operators will need to ensure that the new clientele is well serviced with high-impact, relevant products and services. The future of mobile money is bright, but paying attention to the present is just as important.

Support for mobile money initiatives from governments, non-governmental organizations, and the development community needs to be assessed by relating it to key development goals such as financial inclusion, poverty reduction, increased productivity, and risk management.

There are several advantages mobile money services bring, including economic empowerment and financial inclusion of individuals and businesses. It yields efficiency gains through real-time transactions and convenience in making payments and sending remittances. Other benefits include; greater transparency and access to public funds through mobile payments to government programs; cheaper services than alternatives such as cash and banks; increased competition among providers, which drives costs down for users.

Financial Inclusion

Over the past decade, mobile money has made significant strides in bringing financial services to rural communities, including Ghana. As a result, mobile money has the power to drive financial inclusion in emerging markets. In addition, it has significantly improved financial inclusion for persons with disabilities who may have trouble accessing traditional banks. Mobile money wallets provide access to financial services like P2P payments, online and in-store merchant payments, savings and micro-loans, and insurance.

Fintech innovations play an important role in the financial inclusion of persons with disabilities, a population with traditionally low access to basic financial services. Mobile money apps, payment technology, and lending applications provide convenient and accessible options for people with disabilities who want to participate more fully in their local economies.

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Reduced Risk and Increased Profits

By providing records of financial transactions, mobile money has the potential to alleviate some of the risks associated with cash transactions and thereby reduce transaction costs. Digital financial transactions are also highly beneficial to small businesses. Two-thirds of adults in developing countries say their businesses are more efficient because of mobile money. It can increase trust in new vendors and business partners, lowering barriers to entry, particularly for mobile money agents who may not have collateral. In addition, digital financial transactions can help regulate service providers by allowing individuals to more easily compare fees across providers and facilitate cheaper international remittance transfers by identifying and verifying customers.

Digital records of payments may protect consumers against theft, fraud, and misinformation. Such protection can reduce consumer transaction costs and increase business use through trust.

Transparency

When a customer creates a new mobile money account, that creates potential credit information of intrinsically higher quality to lenders than the information banks negotiate over after loans. Asymmetric information is reduced because a specific customer’s funds are recorded in their own account. In the case of developing economies, this represents the unique opportunity afforded by mobile banking to offer financial transactions and credit to underserviced economies.

Increased record transparency safeguards customers’ rights and develops company confidence, hence fostering the expansion of efficient payment networks. In addition, mobile money facilitates the tracking of foreign transactions, facilitating the identification and control of money laundering. If mobile money could minimize the high cost of remittances, it might increase official remittances and re-channel “informal” remittances through official channels, thus increasing reported remittances. In essence, mature mobile money systems and their records contribute to the economy’s “formalization” by integrating informal sector users into formal business networks, formal banking, and insurance, and connecting them to the government via social security, tax, and secure wage payments.

Enhancing Economic Effectiveness

In Sub-Saharan Africa, the rapid adoption of basic mobile money services has coincided with economic growth and improvements in various livelihoods indicators, including greater access to formal financial services.

Mobile money could provide economic opportunity and expand access to basic products and services, including health care. Mobile money’s impact on poverty alleviation ranges from modest effects to reduced poverty significantly.

Research shows that mobile money reduces the volatility of earnings and consumption, permitting more diversified investment. Savings are higher when users can transfer money to their future selves, exploit daily income fluctuations or make lumpy investments in durable consumer goods.

Since a mobile phone provides instant access to communication and payment networks, it increases the possibility of pulling together resources to invest in market opportunities that arise. It is particularly valuable to individuals who operate in labor markets with short lead times for employment, such as agriculture and construction. Mobile phones also improve access to credit markets, reducing investment costs by eliminating the need for informal lenders or collateral. There are even greater possibilities when mobile phones are connected to financial services.

Final Notes

Many countries’ citizens lack access to financial services. This is typical because banks will not venture into areas with few clients, and many of these tiny customers will not meet the bank’s standards. Savings, loans, payment and lending, and insurance are examples of such services.

On the other hand, mobile money carriers can offer financial services at a lesser cost because more consumers access them via mobile phones. Therefore, businesses, governments, and other institutions must collaborate actively to establish a comprehensive suite of financial services delivered via mobile money carriers’ payment services.

Early studies in South Africa found that mobile money could advance financial inclusion and reduce the cost of financial transactions.

Mobile money could transform the experience of the rural poor and expand access to financial services.

Oystr leverages mobile money, among other alternative data, to financial inclusion for Africans, and a bigger customer segment for financial institutions. Visit us to learn more.